The European securities regulator has branded digital currency ‘volatile,’ despite acknowledging digital assets as an innovative development.
The European Securities and Markets Authority (ESMA) published a report setting out its 2021 financial innovation scoreboard, which put digital currency and blockchain technology out in front at the top of the list.
The report, titled “Trends, Risks and Vulnerabilities,” viewed digital currency as a trending innovation in finance, as well as a threat to the sustainability of financial services, as a result of its environmental impact, especially as relates to block reward mining.
Among the risks highlighted were the volatility of digital currency assets, the growth in decentralized finance platforms, the pending launch of central bank digital currencies, and stablecoins.
“Most crypto assets (CAs) are highly volatile in price and operate outside of the existing EU regulatory framework, which raises investor protection issues,” stated in the report.
The report goes on to identify increasingly risky behavior in equities and digital currency trading markets as being partly responsible for the drive in volatility:
“Increased [risk-taking] behavior has led to volatility in equity (e.g., GameStop-related market movements) and crypto asset markets, as well as to the materialization of event-driven risks such as in the case of Archegos or Greensill.”
ESMA is an independent agency tasked with overseeing securities regulation within the European Union. As well as ensuring order in financial markets, the agency also has the remit of ensuring investors are protected from frauds and scams.
Their annual scoreboard looks at innovations in financial services, ranked in order of the perceived need for a policy response or further analysis, as well as how they relate to the overarching objectives of the ESMA.
With digital currency, digital assets, and blockchain technology now top of the list, it looks like the sector could be in for closer scrutiny from regulators within the EU.
Watch: CoinGeek Zurich panel, Natural Resources, Sustainability & Blockchain
New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.